5 EU countries demand anti-VAT fraud powers

The finance ministers of five European Union countries have called for more powers to combat VAT fraud which costs the EU up to €100 billion per annum.

The countries, in Central and Eastern Europe include: Austria Bulgaria; Czech Republic; Hungary and Slovakia. Since major VAT fraud emerged over ten years ago in Western Europe, it has now spread to the east as organised gangs have sought new regimes that are vulnerable.

The principle new measure called for is the ability to impose the reverse charge on any domestic sales above a certain level. At present, EU countries only have the power to do so for certain fraud-sensitive industries such as computer chips, mobile phones and precious metals.

It is anticipated that a further 5 countries will join the campaign shortly. One of these countries may be German as their State Secretary, Micahel Meister, attended the meeting as an observer. The group of countries will propose the EU VAT changes to the Commission in the forthcoming months.

Missing trader VAT fraud

At the heart of the problem are sales of goods across EU borders. This is VAT free, so nothing is owed to the tax authorities. Fraudsters have taken advantage of this simplification by declaring a cross border trade with no VAT, but actually selling the goods domestically with VAT and then pocketing the VAT. In more complex variations – known as carousel fraud - this involves multiple transactions and falsified movements of goods across the entire region.

There have been various estimates of value of such fraud in the EU. The Dutch Court of Auditors estimated it was €100 billion per annum five years ago. The Czech Finance Minister, Andrej Babis, put it €50 billion today following a raft of measures introduced by the Commission to combat fraud.

Richard Asquith is VP Global Indirect Tax at Avalara, helping businesses understand their compliance obligations as they grow globally. He is part of the European leadership team which this year won International Tax Review's Tax Technology Firm of the Year. Richard qualified as an accountant with KPMG in the UK, and went on to work in Hungary, Russia and France with EY.